Research shows oil booms can yield long term socioeconomic decline

If an old-timer Denver wildcatter named James K. Munn has his way, there’s going to be an oil drilling boom in Escalante, Utah. Escalante’s a small town in the southern part of the state, placed right smack dab in the center of some of the most spectacular landscape in the West.

Naturally, many residents, especially those who moved here for the scenery and solitude, or who live off the tourists who come for that same scenery, are upset. They are aghast at the prospect of seismic thumper trucks rolling across the land, of brightly lit drill rigs piercing the night sky, of the tangle of roads and fleets of trucks that accompany a boom, of the potential impacts to air and water.

And just as naturally, others are excited. The old, ag-based economy has long been fading, and tourism – drawn mostly by the Escalante-Grand Staircase National Monument – is seasonal, the wages are low, and the whole thing can get shutdown overnight at the whims of a bunch of loonies in Washington. The economic benefits of an oil boom are well-known: An influx of high-wage jobs leads to increased upward mobility, a lot of contractors to fill hotel rooms and restaurants, a big boost to county property tax revenue, and state severance taxes, which will hopefully make their way back to the community and improve quality of life. If the oil holds out and prices stay high, it all adds up to long-term prosperity and a way to keep local kids from fleeing to make a living.

Or not. Last week, Montana-based non-profit Headwaters Economics released its study of 207 Western counties with high levels of oil and gas development. “Oil and gas activity can have a strong immediate positive impact on employment and income,” researchers concluded. “Our analysis, however, finds that when fossil fuel development plays a role in a local economy for a long period of time there are negative effects on per capita income, crime rates, and educational attainment.”

Headwaters’ study is unique, the organization says, because it is among the first to look at long-term impacts of oil and gas drilling – the study period is from 1980 to 2011 – rather than just focusing on boom or bust times.

It's no surprise that an oil and gas boom can elevate crime in the short term. Bring truckloads of strapping, mostly young men, many of them contractors who won't stick around for long, into a rural community to live in a man camp or crappy short-term rental; subject them to long, dangerous shifts on the oil rigs; then put a big wad of cash in their hands and set them loose on the town for the weekend, and yes, crime is going to increase. It’s a phenomenon we’ve seen in Western boomtowns for decades.

“Policing the Patch,” a study published this summer by North Dakota State University Associate Professor of Criminal Justice Carol A. Archbold, provides a concrete, sometimes shocking look at the phenomenon as it unfolds in the Bakken oil patch in western North Dakota, which is undergoing a massive boom. Archbold interviewed 101 local police officers, who make it clear that they are burdened by the boom and that dealing with the influx takes away from other aspects of their jobs.

North Dakota's oil boom started in about 2006, and just went crazy after that. Source: Energy Information Administration.

The number of calls for police service has ballooned. The Williston Police Department had 3,796 calls in 2005, and more than 16,000 in 2010; Watford City police went from 41 in ’06 to 3,938 in ’11. “It used to be like Mayberry,” says one officer, but the newcomers, reports another, “don’t have the North Dakota mentality to respect one another.” Another officer says:

The number of police calls in communities most affected by the North Dakota oil boom ballooned as soon as the boom hit. Source: 'Policing the Patch: An examination of the impact of the oil boom on small town policing and crime in western North Dakota' report by Carol A. Archbold.

The violence associated with fights is different. In the past, it was two local people punching each other in the parking lot. Now, there are people who do not know each other that use knives, beer bottles, and anything else they can get their hands on when they are fighting. It all revolves around alcohol.

The Headwaters study, though, suggests that this uptick in crime at least partially endures over the long term. Since the study is so broad, and deals with statistics and data without ground-proofing, it doesn't even speculate as to what kind of dynamic is going on here. Meanwhile, the number of kids going on to get college degrees in drilling-heavy counties also decreases over time, according to the study. While the researchers don't guess at the reason, here's a possibility: If you grow up thinking that you can get a $60,000 job in the oilfield right out of high school, why spend that same amount for four years of college?

But this idea that per capita income actually decreases in proportion to the extent and duration of an oil boom is a bit more surprising. After all, what about all those high paying jobs? One theory (the Headwaters study doesn’t look for causes, only evidence) goes like this: During the oil or gas boom, other sectors of the economy get crowded out by the high-wage jobs — not to mention the associated high housing costs and environmental and socio-economic degradation — in the gas patch. When the boom ends, the drilling-related jobs vanish and, what do you know, the jobs in other sectors have also disappeared. The result? A net loss in jobs over the course of the boom, otherwise known as the “resource curse.” It’s not difficult to imagine how this might play out in a little town like Escalante, with its already fragile agricultural, amenities and tourism economy.

Still, the findings are limited. In order to get the long-term look that they wanted, the researchers were stuck narrowing their focus to the boom of the early 1980s, which was a result of the energy crises and resulting high oil prices of the time. By 1982, prices had plummeted again, and in some places the boom had busted pretty dramatically. It’s too early to tell what the long-term consequences of the natural gas boom, and consequent bust, of the early- to mid-2000s will look like. And the Headwaters study doesn’t seem to account for areas so rich in multiple resources that every bust is followed by another boom, such as the Powder River Basin in Wyoming, where coal, natural gas and oil all feed the economy. Meanwhile, the current oil craze appears to be of a different nature: Oil prices, driven by burgeoning global demand, are likely to stay high for years if not decades, and thus the boom times will last longer, as well, pushing any drop in incomes far into the future.

Far enough, I suspect, that financially-strapped communities will toss those distant concerns aside and welcome the drill rigs, and cash, in today. After all, when it comes to cash, things are looking up for oil-boom communities. The Three Affiliated Tribes of the Fort Berthold Reservation in North Dakota are reportedly earning $40 million in oil revenue each month, and the state of Texas just ended its latest budget cycle with a $2.6 billion surplus, thanks to oil. Those are some blinding numbers.

Jonathan Thompson is a senior editor at High Country News. He tweets @jonnypeace.